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SEBI replaces discretionary settlements with formula-based penalties

SEBI replaces discretionary settlements with formula-based penalties

Rule Changes

New 2026 regulations add fast-track route for small cases and separate disgorgement of wrongful gains

Today: New settlement framework reported in financial media

Overview

Updated 43 minutes ago

India's securities regulator has replaced its discretionary settlement framework with a formula-based one. Companies accused of rule violations now get a predictable calculation instead of a negotiated number.

The change follows a SEBI study showing proposed settlement amounts averaged 8 times higher than the penalties ultimately imposed, and 40% of applications were rejected or withdrawn. The new rules take effect November 7, 2026.

Why it matters

Indian companies facing securities probes now get predictable settlement costs, with a fast-track route for small cases and separate disgorgement of wrongful gains.

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Key Indicators

₹10 lakh
Fast-track settlement threshold
Cases with settlement amounts up to ₹10 lakh skip the advisory committee and go straight to SEBI's panel of whole-time members.
40%
Settlement applications rejected or withdrawn under old rules
Of 1,576 applications filed over three years, 640 were returned, rejected, or withdrawn.
8x
Ratio of proposed settlement amounts to final penalties
SEBI's study found proposed settlement amounts averaged 8 times higher than penalties ultimately imposed.
90%
Maximum cooperation discount
The first applicant who provides substantial help in a probe can get up to 90% off the settlement amount.
1,576
Settlement applications filed in three years
Under the 2018 framework, 568 resulted in settlement and 640 were returned, rejected, or withdrawn.

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Organizations Involved

Timeline

2018 November 2026

6 events Latest: Today
Tap a bar to jump to that date
  1. New regulations take effect

    Upcoming Regulation

    The 2026 regulations come into force, repealing the 2018 settlement framework.

  2. New settlement framework reported in financial media

    Today Announcement

    Financial media report the formula-based settlement framework and fast-track route.

  3. Regulations published in Gazette of India

    Publication

    New regulations published in the Gazette of India, starting the 30-day countdown.

  4. SEBI notifies new settlement regulations

    Regulation

    SEBI notifies the Settlement of Administrative and Civil Proceedings Regulations, 2026.

  5. SEBI board approves new settlement framework

    Decision

    SEBI's board approves a formula-based settlement framework after stakeholder consultations.

  6. SEBI introduces settlement framework

    Regulation

    SEBI (Settlement Proceedings) Regulations, 2018 take effect, allowing entities to settle enforcement proceedings.

Scenarios

1

Fast-track route drives surge in small-case settlements

Likely Resolves by Q2 2027

Discussed by: SEBI and financial media covering the new framework

The ₹10 lakh fast-track route skips the High Powered Advisory Committee, moving cases directly from the Internal Committee to the Panel of Whole Time Members. If the route proves popular, SEBI's annual report will show a jump in settlements for minor violations, reducing the enforcement backlog.

2

Formula-based amounts boost overall settlement rate

Likely Resolves by Q2 2027

Discussed by: SEBI, which designed the formula to address the 40% rejection rate

The formula makes settlement amounts predictable, which could encourage more entities to apply. SEBI's study showed proposed amounts were 8 times higher than final penalties, deterring settlements. If the formula works, the settlement rate should rise above the historical 36%.

3

Formula-based settlement amount challenged in court

Possible Resolves by End of 2027

Discussed by: Legal analysts tracking securities enforcement

A company could challenge a settlement amount calculated under the new formula, arguing it exceeds statutory limits or is arbitrary. Such a challenge would go to the Securities Appellate Tribunal (SAT) or the Supreme Court, potentially forcing SEBI to revise the formula.

Historical Context

2 moments from history that rhyme with this story — and how they unfolded.

2018

SEBI Settlement Proceedings Regulations 2018

SEBI introduced its first comprehensive settlement framework, allowing entities to settle enforcement proceedings by paying a negotiated amount determined through a discretionary process.

Then

The framework processed 1,576 applications over three years, but 40% were rejected or withdrawn and only 568 resulted in settlement.

Now

A SEBI study found proposed settlement amounts averaged 8 times higher than final penalties, deterring entities from seeking settlements.

Why this matters now

The 2026 regulations replace this framework, addressing its unpredictability with a formula-based approach and a fast-track route for small cases.

2024-2026

SEBI's settlement outcome study (2024-2026)

SEBI studied settlement applications from the last two years where settlement couldn't be reached and penalties were imposed, finding proposed amounts averaged 8 times higher than final penalties.

Then

The study informed the design of the new formula-based framework, including the base amount linked to minimum statutory penalties.

Now

It led directly to the 2026 regulations, which separate disgorgement of wrongful gains from the settlement amount to remove double counting.

Why this matters now

The study is the evidence base for the new formula, which aims to make settlement amounts more predictable and closer to actual penalties.

Sources

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